Where to invest if you want to avoid stocks

NEW YORK (Money) -- My husband and I sold our home for a $175,000 profit that now sits in low-interest credit union accounts. We would like to have this money working harder for us, but we don't want to invest in stocks. We also need liquidity since we plan to buy a new home (although my husband wants to wait a bit since he figures house prices will continue to drop.) Any suggestions? -- Debra T., Pasadena, Calif.

After snagging a presumably tax-free $175,000 profit in this housing market, the last thing you want to do is jeopardize it, especially if you're going to need it relatively soon to buy new digs.

That essentially leaves you with two choices: a money-market mutual fund or some sort of federally insured account. In light of the debt problems in Europe and the still-uncertain fallout from the downgrade of U.S. debt, some investors have raised concerns about the security of money-market mutual funds.

I certainly don't want to suggest that money-market funds are unsafe. I've got money in them myself.

But if you're looking to make that big profit of yours work harder while keeping it accessible and completely safe, an insured credit union or bank savings account or money-market account is pretty much a no-brainer today. You can easily find accounts that return better yields than money-market mutual funds by roughly a full percentage point or more.

So assuming your credit union and your account qualify for the deposit insurance offered through the National Credit Union Association -- which generally provides up to $250,000 in coverage -- then that seems like a perfectly reasonable place to keep this dough.

What you don't want to do, though, is try to earn more by going to a bond fund, an option that could lose value if rates rise, or by investing in other putative secure vehicles that have strings attached (like annuities with their withdrawal charges) or that come with other drawbacks (think bank loan funds and auction-rate securities).

Nor do you want to invest this dough in some of the other supposed safe havens some advisors have been touting lately, such as gold, Swiss francs or dividend-paying stocks.

Whatever these alternatives may have going for them, the fact remains that their prices fluctuate. So, just as with stocks, it's possible that when you need your money to buy the house, the value of these investments might be less than what you paid for them.

The story is different for money you're investing for the long-term. But when it comes to money you're going to need within the next few years -- be it a down payment for a home, an emergency fund or, in the case of retirees, living expenses for the next year or two -- this is definitely not the time to get fancy and stretch for returns.

As for the issue of when to buy your next house, I think your hubby has the right idea about taking your sweet old time.

Not that I'm suggesting you try to buy just when the housing market has hit bottom. That would be as futile as trying to time the stock market. But, really, what's the hurry?

It's not as if you've got to move quickly before house prices zoom out of sight. While the latest S&P/Case-Shiller housing report did show that its widely followed 20-city index gained 1% in May, that increase mostly reflects the boost housing sales often get in the spring.

Minus that seasonal effect, prices were largely flat. And since you've got plenty of cash to put toward a new home, you shouldn't have trouble lining up financing, unless you have credit problems or job issues you didn't mention.

So as far as home shopping is concerned, you're in the proverbial catbird seat: You've got the financial wherewithal to buy, you don't have another house to unload, it's a buyer's market and mortgage rates are near all-time lows.

That's about as good as it gets. Some housing market pros have expressed concern that bond yields and mortgage rates could climb in the wake of S&P's downgrade of the U.S. Treasury's debt and the debt of Fannie Mae and Freddie Mac.

But if that happens, it's far from clear how much rates would rise. No disrespect to the credit rating agencies, but expectations in the bond market ultimately determine interest rates, not a bunch of guys in ties on S&P's sovereign debt committee.

So you'll have to keep tabs on the mortgage market as events unfold. But given the weakness in the economy and the fact that investors are still rushing into Treasuries as a safe haven, I'd be surprised if we see any sort of spike in mortgage rates in the near term.

Bottom line: you and your husband seem to be handling your situation just fine. Now all you need to do is find that dream house, and hope that home prices start rising not too long after you do.